Columbus Mckinnon Corp Q3 FY2023 Earnings Call

Greetings, and welcome to the Columbus McKinnon Corporation Third Quarter Fiscal Year 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Deborah Pawlowski, Investor Relations for CMCO. Thank you, Ms. Pawlowski. Please go ahead.

Thank you, Donna, and good morning, everyone. We certainly appreciate your time today and your interest in Columbus McKinnon. Joining me here for the quarterly conference call are David Wilson, our President and CEO; and Greg Rustowicz, our Chief Financial Officer. You should have a copy of the third quarter fiscal '23 financial results, which we released earlier this morning, and if not, you can access the release as well as the slides that will accompany our conversation today on our Website at investors.columbusmckinnon.com. David and Greg will provide their formal remarks, after which we will open the line for questions. If you will turn to Slide 2 in the deck, I will review the Safe Harbor statement. You should be aware that we may make some forward-looking statements during the formal discussions, as well as during the Q&A session. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release, as well as with other documents filed by the company with the Securities and Exchange Commission. You can find those documents on our Website or at sec.gov. During today’s call, we will also discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliation of non-GAAP measures with comparable GAAP measures in the tables that accompany today’s release and slides. So, with that, please advance to Slide 3 and I will turn the call over to David to begin.

Thanks, Deb, and good morning, everyone. Our results for the quarter demonstrate the steady progress we are making as we execute our plan to transform Columbus McKinnon into a higher margin, higher growth business. There were several highlights in the quarter. Sales were up 11% on a constant currency basis as we captured price, increased volume to meet demand and the team successfully reduced past due backlog. Past due backlog was reduced by $16 million or 28% as we continued efforts to improve our customers' experience. We expanded operating margins by 170 basis points on a GAAP basis and 70 basis points on an adjusted basis. Q3 daily order rates increased 3% sequentially, and order rates in January through last Friday are up nearly 6%. Finally, we are seeing project activity that had stalled in Q3 begin to advance this month. We remain bullish on megatrends that we expect will continue to drive opportunities for us even against the softening economic backdrop. Global shifts, or I should say geopolitical shifts, transportation and logistics challenges, insufficient supply and the limitations of available labor are driving investment decisions that support automation, the reshoring of manufacturing, facility upgrades and expanded operational investment. We continue to strengthen our balance sheet and improve our financial flexibility to execute our strategy. We paid down $30 million in debt through the first 9 months of our fiscal year and have brought our net debt leverage ratio to 2.7x. We also repurchased approximately 31,000 shares at an average price of $32.17 in the quarter. On Slide 4, I will update you on our strategic progress. As mentioned earlier, growth in the quarter on a constant currency basis was 11%. I believe our new regional leadership team structure contributed to this success. In fact, sales in EMEA were up nearly 12% excluding the impact of FX driven by both pricing and volume. We also continue to innovate to drive growth, and we introduced three new products in the quarter, a new medium-duty belted conveyor that fills the gap between our current flagship products and capacity and capabilities. The new line includes many features that provide competitive advantages including flow accuracy tracking and slim profile; a new 4.5 tonnes hand chain hoist for the general industrial markets and we pre-launched the next generation wire rope hoist with available frequency drive controlled motion for better speed and position control. This solution offers an easy upgrade path to a digitally connected footprint for diagnostics and remote monitoring. Our NPD N-3 revenue, which we use to measure vitality was 5% of total revenue on a year-to-date basis and remains ahead of plan. Our most immediate opportunity is improving our customer experience in North America to gain market share and to grow our customer base. We have improved our performance relative to internal customer service metrics, including call wait times, quotation lead times, order entry times, engineer drawing lead times, lead time accuracy, delivery status update accuracy, and past due backlog reduction. We are laser focused on reducing delivery lead times and have created plans for each product that will reduce lead times to competitively advantaged levels. While we are making progress on these initiatives, we are not yet satisfied with the results. I should also mention that in December, we successfully launched and went live with our new ERP system in Mexico. This is consistent with our digital initiatives roadmap and is expected to improve efficiency and enable our teams to be more effective as they address both internal and external customer needs. This also provides the foundation for future enterprise simplification efforts. Despite supply chain headwinds and related production impacts, we continue to expand margins. We have now extracted $7.2 million in annualized costs through the business realignment efforts we initiated earlier this fiscal year. We realized $4.7 million of these savings in fiscal year '23 and expect the balance to help offset further inflationary pressures in fiscal '24. Rest assured, we are also taking actions to identify additional costs that we can take action on in fiscal '24. We generated $6.5 million in free cash flow in the quarter and are expecting a significant increase in cash from operations in the fourth quarter, as we reduce inventory and improve working capital. Slide 5 depicts our adjusted gross margin progression over the last several years. Since fiscal '18, we have improved gross margin by 310 basis points, and we believe we are on track to achieve our fiscal '27 objectives. As you can see on this slide, there are several levers we will address to achieve our targeted level of approximately 40%. I want to remind you on Slide 6, that we were heading and why. We're transforming Columbus McKinnon into a leading motion control enterprise for material handling by leveraging our product portfolio and expanding into secular growth markets. We expect our strategy to shift our mix of business into our product platforms that command higher margins and have greater growth potential. By organizing around these platforms, we are also identifying larger addressable markets, creating more opportunities for us to grow and succeed. With that, let me turn the call over to Greg to discuss our financial results in greater detail.

Thank you, David. Good morning, everyone. On Slide 7, net sales in the third quarter were $230.4 million, up 10.5% from the prior year period on a constant currency basis, and above the midpoint of the guidance we provided last quarter. As you know, the third quarter is impacted the most from a seasonality perspective as we had four less workdays in most geographies around the world compared with the previous quarter. Overall, we are pleased that we were able to reduce past due backlog by $16 million despite persistent supply chain challenges for motors, drives and other components that we purchase. We also had delays in certain rail projects for various reasons that impacted revenue by about $4 million in Q3. This revenue is expected to be recognized in Q4. Looking at our sales bridge, pricing gains of $11.9 million or 5.5% accelerated as we converted orders to revenue at more current prices. This was up 60 basis points from our Q2 level. Volume increased by 2.7% or $5.9 million, which we will cover in the regional update. Acquisition revenue represents 2 months of sales from the Garvey acquisition, which closed on December 1st of 2021. This provided $4.9 million of incremental growth in the quarter. Foreign currency translation reduced sales by $8.4 million or 3.9% of sales. Let me provide a little color on sales by region. For the third quarter, the 9.9% growth we saw in the U.S was driven by a 5.8% improvement in pricing. Acquired revenue from Garvey added 3.5% growth in the U.S. Sales volume was up 0.6%. Outside of the U.S., sales grew 11.4% on a constant currency basis. Pricing improved by 5.1% and sales volume increased by 5.9%. We were encouraged with the volume increases we saw, which were approximately 12% in Latin America, 9% in Asia, 5% in Europe, the Middle East and Africa or EMEA and 3% in Canada. We are especially encouraged by the volume gains in EMEA, which represents 25% of our business. The region has proven to be resilient in the face of the war in Ukraine and an energy crisis. Both our project business and short cycle business in Europe saw meaningful volume growth. On Slide 8, gross margin of 35.6% was up 90 basis points from the prior year. On an adjusted basis, gross margin was lower by 110 basis points compared with the prior year. Last year's third quarter was unusually strong because we didn't see our typical seasonal dip of roughly 100 basis points in gross margin. In the prior year, we benefited from a strong month from the Garvey acquisition, as they delivered an exceptionally strong margin on a large project they shipped right after we acquired them. This quarter we saw a more normal sequential dip in margins. Third quarter gross profit increased $6.9 million compared with the prior year and was driven by several factors which you can see in the table. Let me comment on a few highlights on our gross profit bridge. Pricing net of material inflation added $5.9 million of gross profit, which includes $6 million of material inflation in the quarter. We see material inflation decelerating as we enter Q4. We also had an unusual product liability settlement last year that did not repeat. The two incremental months in the quarter from the Garvey acquisition provided $1.9 million of gross profit and $4.9 million of revenue. Offsetting these items was foreign currency translation, which reduced gross profit by $2.8 million and lower factory productivity compared with the prior year of $3.7 million. The lower factory productivity was primarily at our Künzelsau facility, as volume picked up for engineered-to-order production activity as our mix shifted to more ETL product which is more complex than standard product. This disrupted our planning and execution processes. This has been addressed as we had a new planning tool to increase the efficiency of this process. Moving to Slide 9, our SG&A expense was $55.4 million in the quarter or 24.1% of sales. This includes a purchase accounting item for $1.2 million related to contingent consideration paid to the owners of Garvey. The acquisition was structured with an earn-out provision based on delivering certain levels of EBITDA in the first year, which was achieved this quarter. The $1.2 million represents the excess of what was estimated during purchase accounting. The total earn-out of $2 million was placed in escrow when the deal closed, so there will not be a cash impact when it is paid in Q1 of next fiscal year. In addition, the sequential increase in our SG&A included $500,000 of incremental business realignment and headquarters relocation costs. The remainder of the sequential increase was due to adjustments to our annual incentive plan accruals and stock compensation. Compared with the prior year, our SG&A costs were higher by $1.9 million which includes the $1.2 million of contingent consideration for the Garvey acquisition, which I just discussed. We also incurred $1.1 million of incremental business realignment costs related to our commercial reorganization, and the incremental 2 months of the Garvey acquisition added $900,000 to our SG&A cost as well. Offsetting these increases were foreign currency translation, which reduced our cost by $1.8 million. For the fiscal fourth quarter, we expect our SG&A expense to approximate $54 million. We are assessing further cost reduction opportunities as we plan for fiscal '24. Turning to Slide 10, operating income in the quarter increased 32% to $20.2 million and adjusted operating income was $23.5 million. Operating margin expanded 170 basis points reflecting pricing, acquisition performance and higher volumes. Adjusted operating margin was 10.2% of sales, a 70 basis point increase over the prior year. As you can see on Slide 11, we recorded GAAP earnings per diluted share for the quarter of $0.42, up $0.08 versus the prior year. Our tax rate on a GAAP basis was 28% in the quarter. For the full year, the tax rate is expected to be between 30% and 32%, which reflects a 6 percentage point impact from the two discrete items that we discussed in our Q1 earnings call. Adjusted earnings per diluted share of $0.72 was up $0.12 from the prior year. While EPS was negatively impacted by $0.08 per share from higher interest expense versus the prior year, we had a favorable impact from FX gains as well as mark-to-market investment gains, which together favorably impacted EPS by $0.12 per share year-over-year. Even though we are 60% hedged to interest rate exposure, interest expense is expected to increase to $7.6 million in the fourth quarter. Weighted average diluted shares outstanding will approximate $29 million and our pro forma tax rate is 22% for calculating non-GAAP adjusted earnings per share. On Slide 12, our trailing 12-month adjusted EBITDA margin is 15.7%. We are making steady progress towards our target of $1.5 billion in revenue with a 21% EBITDA margin in fiscal '27. A return on invested capital of 6.9% was impacted by the Garvey acquisition. ROIC is a key metric in our long-term incentive plan and we expect to see this improve over time. We continue to advance our efforts to reduce overhead, improve productivity and simplify both our product lines and factories. We will also drive the top line as well. These are the key elements to delivering on our growth and profit goals. Moving to Slide 13, we had positive free cash flow of $6.5 million in the third quarter. This includes cash inflows from operating activities of $10.8 million and CapEx of $4.2 million. Third quarter cash flow was impacted by approximately $15 million of higher cash interest and cash tax payments compared to the prior year. As we turn to the fiscal fourth quarter, we expect strong free cash flow as we drive earnings and reduce working capital investments. Full year capital expenditures are expected to be in the range of $13 million to $15 million, or between $3.5 million to $5.5 million of CapEx in the fourth quarter. Turning to Slide 14, we have a strong and flexible capital structure comprised of the term loan B, which requires $5.3 million of the annual principal payments as well as an excess cash flow sweep depending on our total leverage ratio. We have been actively paying down our borrowings and made another $10 million payment in the quarter, bringing the total debt payments year-to-date to $30 million. We expect to pay an additional $10 million in the fourth quarter. The term loan B is 60% hedged with interest rate swaps that blend to a swap rate of approximately 2.08%. As of December 31, our net debt leverage ratio was 2.7x. We have prioritized debt repayment in the current environment and expect to see our leverage ratio drop to under 2.5x next quarter. As David noted, we took advantage of market conditions to repurchase about $1 million of stock in the quarter. Finally, our liquidity which includes our cash on hand and revolver availability remains strong and was approximately $166 million at the end of December. Please advance to Slide 15 and I will turn it back over to David.

Thank you, Greg. As I mentioned earlier, daily order rates improved by 3% sequentially in Q3. Year-over-year, there were two significant factors that impacted our Q3 order levels. First, foreign exchange had a $9 million negative effect during this period. Additionally, there was another $9 million impact on orders due to a decrease in new warehouse investment from a large e-commerce customer. Year-to-date, orders from this customer have decreased by about $25 million. Although current order activity with this customer is on hold, we are actively collaborating with them on other promising and innovative new projects. I should also point out that we are excited about additional e-commerce applications we are securing. We are working with several integrators who are catering to end users seeking to enhance production efficiencies in their internal logistics systems. Our backlog remained stable at $329 million for the quarter, and it is more current due to a 28% reduction in past due orders that we achieved in this period. Now, let me conclude on Slide 16 with some insights regarding our outlook. First, for the fourth quarter, we anticipate delivering quarterly revenue of approximately $240 million to $250 million. This suggests a fiscal '23 growth of 6% for the full year on a constant currency basis, which aligns with our strategic plan. As I mentioned earlier, we are preparing for a noticeable improvement in cash generation during the quarter through a reduction in working capital. We are optimistic about the outlook for fiscal '24 as well. We expect to see growth in the low to mid-single digits for the year. Despite an extended timeline for quotation to order conversion, customer activity and quotation levels have remained strong, and we are not observing signs of an industrial recession. We also believe that a stabilizing environment will facilitate the progression of projects that have been stalled in decision-making. There is considerable activity across various markets. For instance, we continue to see strength in the electric vehicle market, including vehicle and battery production. Energy and utilities globally are also very active. This includes water treatment, wastewater management, waste-to-energy power plants, and ongoing oil production in the Middle East. Utilities are investing in new plants and upgrading older facilities to enhance efficiencies. The defense sector has shown activity with missile elevation devices and chain hoists used for erecting mobile structures. In life sciences, we are supplying automated pharmaceutical packaging and delivery systems for prescription fulfillment. Lastly, I must mention that demand for our entertainment solutions remains strong. We are highly focused on enhancing our customers' experience and actively executing plans to achieve this. This focus will help us improve market share and expand our addressable markets. As we look past fiscal '23, given the activity we are witnessing in our markets, our initiatives to enhance customer experience, and our robust backlog, we expect to continue growing even as the economy moderates. We are dedicated to reaching our long-term goals and anticipate providing further steady proof points as we move forward. With that, Donna, I'll open the call for questions.

The first question is coming from Matt Summerville of D.A. Davidson. Please go ahead.

Hi. Good morning. This is Will Jellison on for Matt Summerville today.

Hi, Will. Good morning.

Thanks for taking my question. The first thing that I was curious about is as we head into fiscal year 2024, I was curious about how you're thinking about pricing entering that year, considering that in fiscal '23 to date, it's been especially strong. And I'm curious as to how you're approaching that equation as we head into the next periods here?

Okay. Yes, thanks, Will. Obviously, we've made a lot of pricing moves over the past 12 months as we've managed through inflation and tried to stay positive as it relates to price cost. As we look into the new year, and as we think about our bridge, looking at this year versus next year, we're thinking there might be another 3% to 4% that might translate as we look at where inflation rates might be our cost position and where we think we've got leverage with our portfolio.

Understood. Okay. And then Greg, I had a follow-up question for you from prepared remarks. It sounded like during the quarter, if I interpreted correctly, you were able to actually net recover some of the sales that had been pushed out in prior periods as a result of supply chain. And I was just curious if we could get a bit better understanding about what enabled that?

Yes. So Will, what we've actually saw was that supply chain constraints were about at the same level. It was better in certain components categories and worse than others. So net-net, we still had roughly a $24 million impact, which I think was maybe a $1 million better than it was in the second fiscal quarter. So was there something else in the prepared remarks that led you to a different conclusion?

No, I was just interpreting the comment of the $16 million backlog.

Yes. So Will, this is David, I'll jump in a little bit. So yes, we did reduce past due backlog by about $16 million sequentially in the quarter. That was a 28% reduction in total past due backlog. We are able to make progress as it related to supply chain delays as it relates to those particular items. And our backlog is becoming more current. Greg's comment related to opportunities to even do better than what we did, given the items that were left on the dock, if you will. But we are continuing to make progress there and I think we are seeing some loosening in the supply chain. There are spot challenges that we're addressing every single hour. But we are making progress there and expect to continue to make progress as we head through this quarter.

Understood. Thank you for that clarification.

Great. Thanks, Will.

Thank you. The next question is coming from Steve Ferazani of SIDOTI & Company. Please go ahead.

Good morning, David. Good morning, Greg. Thank you for the information shared during the call this morning. I have a couple of points I would like to follow up on. Greg, you touched on the year-over-year decline in gross margin. I believe you mentioned a significant Garvey order at the end of the fourth quarter last year. I want to ensure that this is the primary reason for the change, especially since your revenue remained mostly flat sequentially while we observed the decline in gross margin. I am looking to understand the trends in gross margin better.

Thanks for the question, Steve. A year ago, our gross margins were around 37.2% for the quarter, which was consistent with the fiscal second quarter and did not reflect the historical decline we usually experience. This stability can be attributed to our ownership of Garvey for just one month, during which they achieved significant revenue from a large customer with nearly 60% gross margin, positively impacting our results. This year, however, we saw a decline of about 160 basis points compared to Q2, where we would typically expect around 100 basis points of that drop due to fewer working days—60 working days compared to 64 in September. Additionally, we faced lower productivity largely due to challenges at our Künzelsau factory, which is our most complex facility. We experienced a shift towards more engineered-to-order products instead of standard products, which are more intricate and time-consuming. We also encountered planning issues for large projects, which affected our performance this quarter. To address these challenges, we are currently implementing a new production planning module at that facility to complement our existing SAP system, with anticipated benefits beginning in the first quarter of next year. Regarding our Q4 gross margin, we would typically expect around 37%, and we are in that range, boosted by additional workdays. However, we anticipate a negative impact of approximately 80 basis points from some lower-margin rail projects expected to ship this quarter, which typically generates around $10 million in revenue and has gross margins considerably lower than our corporate average, leading to an overall impact of 80 to 100 basis points.

Steve, those are the projects that have been delayed due to the supply chain issues we've previously discussed. This has resulted in some pricing and cost impacts that are gradually being realized. There have been numerous adjustments and controls on electrical components, which contribute to the lower margins. The typical volume in that business for a quarter is about three times less than what we are currently shipping, leading to a mix shift and the margin impact that Greg mentioned, which is about 80 basis points.

So when we think about this moving forward, even past this quarter, generally mix shift has been helping you because Dorner and Garvey have been growing at a faster rate and at higher margin. You mentioned the e-commerce customer. How were you thinking about mix shift over the next multiple quarters in terms of what you're seeing from orders, et cetera?

Yes, Steve, we think we can continue to drive accretive margins in the business over the mid to long term. We have this issue that Greg just referred to in the period which is driven by the shipment of this very large volume of legacy orders that we need to get through the system. But we anticipate that the volume increases we would expect to see continuing to come from those faster-growing segments as well as our own work around 80-20 productivity improvements driven by a more stable and an improving supply chain will allow us to drive expanding margins. Great. Thanks, Steve.

Thanks, Steve.

Thank you. The next question is coming from Jon Tanwanteng of CJS Securities. Please go ahead.

Hi, good morning. Thanks for taking my questions. David, I was wondering if there just comes a little bit more on the visibility now and in the rest of 2024? Are you actively planning for a soft landing at this point or something different you expect? Any significant weakening from here? Or does your crystal ball tell you that things are going to stay pretty healthy at this point?

Right. We have a pretty good deed on certain current activity. And as we look to the quotation and customer discussion activity, we see no signs of an industrial recession as we were talking about earlier, in the prepared remarks. Obviously, our crystal ball doesn't go out years and years, and obviously things can change. At this point, we're planning on a relatively soft landing. And the way that we're thinking about the way the year develops, and if there is an impact, it's an impact that would come later in our period. But we're anticipating that we can deliver low to mid-single digit growth next year. Given the current environment, the activity we're seeing in the marketplace, our improvement initiatives around shared gains and customer additions as well as the backlog that we have, which is still pretty robust.

Yes, and just to add on, Jon, we typically lag by a quarter or so. And as David mentioned, our backlog is very healthy currently. And that will, I think, buffer us, even if there is a bit of a slowdown or recession later in our fiscal year.

Got it. That's very helpful and encouraging to hear. Greg, I think I got the message on the longer-term margins from what you said, expanding, but did you give me directional thoughts on gross margins in the current quarter? I know it's usually a little bit better on volume, but are there any other plus or takes that we should think about?

Yes, Jon, we discussed with Steve earlier that we typically expect gross margins around 37% in the fourth quarter, which would be an increase from our current levels. However, we anticipate a negative mix impact from our rail business, which we estimate will be approximately an 80 basis point negative impact.

Got it? Yes. So you'd kind of be up into close to 230. Maybe if that continued through the quarter from the 215 number. My question is, assuming your supply chain eases so you can work down the backlog to more normal levels. What absolute level of orders do you think you would need to support an outlook for low to mid single-digit growth in revenue in 2024?

Yes, we expect demand to remain at current levels, indicating a stable base of activity throughout the period. We can achieve the outcomes we discussed with this steady demand. Our approach is not overly aggressive in terms of increasing order activity, nor does it account for significant declines in demand. We are actively pursuing initiatives to grow and access more opportunities. If conditions improve, we will certainly look to take advantage of that. However, we believe that with our consistent and stable performance, we can meet those expectations.

Right. Good morning. Thanks for taking my questions.

Hey, Pat. Good morning.

A quick one. Just mechanically on the backlog with the book-to-bill ratio below one in the quarter. How did it remain stable sequentially? What are the moving parts involved?

Yes. So it was more FX driven, I guess.

Yes.

We experienced a book-to-bill ratio of less than one during the period, having shipped 230 while booking 215. The difference can be attributed to foreign exchange adjustments. The backlog is recorded in U.S. dollars as of December 31, and as you may recall, the foreign exchange fluctuated significantly, moving from below one at the end of September to around 109 today, which would have been approximately one away at the end of December.

Okay. Understood. And on the orders, dynamics, I think you said 6% growth in January, which I think you said is sequential versus maybe the third quarter?

That's right. Sequential versus the third quarter up about 6% on a period-to-date basis through Friday of last week.

Got it? Yes. So you'd kind of be up into kind of close to 230. Maybe if that continued, through the quarter from the 215 number. My question is, assuming your supply chain eases so you can work down the backlog to more normal levels. What absolute level of orders do you think you needed to support an outlook for low to mid-single-digit growth in revenue in 2024?

Yes, we expect demand to remain steady at current levels, indicating a stable base of activity throughout the period. We believe we can maintain the outcomes we've discussed due to this stable demand. Our expectations are neither overly ambitious in terms of increasing order activity nor do they anticipate significant declines in demand. We are actively pursuing initiatives to drive growth and unlock additional opportunities. If conditions improve, we will certainly be ready to take advantage of them. However, we believe that with the ongoing stable performance we have been experiencing, we can achieve those outcomes.

Hi, guys. Just a follow-up on the large customer that currently paused in e-commerce? Do you expect them to come back and then determine any point and would be at a similar level of scale or something different? I assume their push for automation is going to decrease at all. So just wondering what your thoughts are?

It's a great question, Jon and we are very actively engaged in dialogue with them as a customer and working with them and many other customers in the space and excited about the opportunities that exist there. Obviously, it's a pretty material impact to absorb in a nine month period. But we really proud of the team really excited about the investments we've made in the space. And think that the longer term opportunities there are really great. And so when you look at what will happen over time, and the CapEx that will be spent in automating delivery and execution, as people think about e-commerce or e-delivery. We think we're going to really see some nice developments there, both with this customer and others. And so the discussions that we're having involve project opportunities that are every bit as large as what we've experienced in the past, and could be even more significant. But obviously, that depends on timing and how things develop and the pace at which they do but when you look more broadly, at the market in general. And you think about the distribution and execution of order fulfillment, and the automation needs in that environment. And our focus on being very relevant there. I think there's a nice opportunity.

Got it. Thank you. And then just coming back to the improvement in cash flow. I know you're planning to pay down $10 million in debt, what what's the plan for the excess at this point? I know you've been repurchasing some shares. Are you planning to keep that powder dry? Or is that is a potential use of the capital?

Yes, so we will be pushing the entire quarter on the cash front to reduce inventory and collect more receivables, et cetera. And a lot of times, the last couple of weeks of the quarter is when you see a pretty significant spike. As we're putting the full court press on and so we'll probably end up with the cash on the balance sheet.

Okay, got it. Thank you.

Great. Thanks, Jon.

Thank you. At this time, we're showing no additional questions in queue. At this time. I'd like to turn the floor back over to management for any additional or closing comments.

Great, thank you, Donna. We appreciate everyone's interest in Columbus McKinnon. In closing Q3 represented another proof point along the path to delivering on our strategic objectives. We had double-digit growth on a constant currency basis, a 32% increase in operating income. We made progress towards improving customer experience and we further reduce debt. We are excited about our future and we look forward to updating you again after we close out the fiscal year. Have a great day everyone.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines at this time or log off the webcast and enjoy the rest of your day.